viii A STUDY IN PUBLIC FINANCE

CHAPTEK IV

PAGH

THE FINANCE off BUSINESS UNDERTAKINGS OPERATED BY PUBLIC

AUTHORITIES ....... 24

§§ 1-2. Given that a public authority is operating a service
which can be financed by fees, it has to be decided in what condi-
tions this method of finance is preferable to others.

§§ 3-5. Gratis supply in unlimited quantities, financed out of
taxes, is only feasible without large waste for commodities and
services, e.g. medical attendance, of inelastic demand :

§ 6. And gratis supply plus rationing is, for many sorts of service,
very difficult to work.

§§ 7-8. Gratis supply may be desirable in special circumstances or
where to collect fees would be highly inconvenient.

§ 9. But, in general, when government provides goods or services
for the specific use of individuals, fees should be charged to cover
the costs.

CHAPTER V
THE BANGS OF GOVERNMENT EXPENDITURE . 30

§§ 1-2. The amount of those kinds of government expenditure
which are optional, in the sense that they are not fixed by past con-
tracts, should be determined with some reference to the burden
involved in raising the money to finance them.

§§ 3-5. The conception of a balance between marginal cost and
marginal return can be made to throw some light on this matter.

§ 6. But the presence in taxation of a coercive element likely to
cause indirect damage to economic welfare must be allowed for.

CHAPTEK VI
THE PLACE or LOANS OTHER THAN WAR LOANS IN PUBLIC
FINANCE ........ 35
§ 1. In general, it is agreed that regular recurrent expenditure
should be met out of taxes.
§ 2. And expenditure on remunerative public works out of
loans.
3. The real problem concerns non-remunerative occasional
expenditures,
§ 4. It is sometimes argued that finance by taxes burdens the
present, and finance by loans the future; and, therefore, that
the choice of method should depend on how far the present and
the future respectively benefit from the expenditure. But this is
not so.
§ 5. The issue is not one of justice between generations* but of
what is technically convenient and politically feasible.